The Real Story Of Air India Turnaround And Claim That It Is To Turn Profitable 2 Years Before Schedule
May 12th, 2016
When the Civil Aviation Minister announced a turnaround of AirIndia(AI), many went gaga. An ill informed nation with an army of fan clubs supported by a compliant media is good recipe to for an economic disaster. Because, This Claim hides more and reveals nothing new. The minister talked of an operating profit of 8 crores due to 11% cost reduction because of ‘operational efficiency’. If we go by interest rate that any other airline (like Kingfisher) would have been charged, that would translate to a Net Loss of 6500 crores (AirIndia has a debt of 51000 crores). For the record, The losses of AI were Rs.5,490.16 crore, Rs.6,279.6 crore and Rs.5,859.91 crore in 2012-13, 2013-14 and 2014-15 respectively.
To understand AI’s performance and efficiency, we should see how other airlines performed. Jet Airways, which had a loss of Rs.1813 crores in 2015 has a net profit of 777 crores in the first 9 months of 2015-16. SpiceJet which had a net loss of 687 crores in 2015 has a net profit of 334 crores in 9 months of 2015-16. Please note that It is net profit and not operational profit.
The ‘operational efficiency’ of AI is largely because of the fall in price of crude. For the quarter ending December 2014, SpiceJet had a turnover of Rs.1301 crores with fuel cost being 44% of revenues at Rs.562 crores. For the quarter ending December 2015, SpiceJet turnover jumped to Rs.1439 crores and fuel cost slumped to 25% of revenues at Rs. 364 crores, reflecting fall in crude prices. While SpiceJet’s operational efficiency improved by 19%, AirIndia underperformed with an efficiency of only 11%. This is largely due to the load factor and resultant yields. If you have an On Time Performance(OTP) at 78.4%, it has to show on load factor, isn’t it? Imagine that you have 21.6 % chances that your flight would be late!
AirIndia is currently on a Rs.30000 crore bail out package. Kingfisher shut down for a fraction of that. A nation faced with drought and 60000 farmer suicides each year is throwing Rs.30000 crores of good money after a bad Air India. Every government – UPA and now NDA are giving false hopes to the nation by releasing limited information. It is high time we wash our hands off AirIndia. You leave the space and private players will step in to fill the gap. In any case, the State need not run an airline, a hotel chain and manufacture Condoms!
And talking of crony capitalism and private entrepreneurs turned villains, where would you put the 51000 crores that banks lent to Air India? Is it an NPA in their books? Would the government pay, if AI defaults? What happens to bank Balance sheets if it is allowed to default? Most likely, we will have an AirIndia Cess soon to pay for these losses. Would you rob us to pay for AI? High time Modi wields the baton on AI and shows them the door. It is an opportunity for him to show courage, conviction and live up to his promise of a tough administrator. Modi Ji, please act and also tell your minister to stop peddling lies as half truths.